Sri Lanka says China debt deal covers $4.2 billion as other talks drag on

By Uditha Jayasinghe, Jorgelina do Rosario and Leika Kihara

COLOMBO/MARRAKECH (Reuters) – Sri Lanka said on Thursday it reached an agreement with the Export-Import Bank of China covering about $4.2 billion of outstanding debt, while talks with other official creditors stall.

Sri Lanka, mired in its worst financial crisis in decades, has been trying reach restructuring deals with creditors since last autumn, having being forced to default on its foreign debt in May 2022 after its foreign exchange dwindled to record lows.

The EXIM deal will help Sri Lanka in getting past the first review of an International Monetary Fund (MF) program, and securing a second IMF tranche of about $334 million, its finance ministry said in a statement. It gave no further details.

China is the island nation’s largest bilateral creditor.

A debt rework between Sri Lanka and countries including Japan, India and France was also expected this week, but news of the EXIM deal took them by surprise. The three nations request comparability of debt treatment with China.

They were “on the verge of finding an agreement,” French Finance Minister Bruno Le Maire told journalists in Marrakech.

A senior Japanese official had said on Wednesday that creditors were struggling to reach consensus and finding an agreement during this week’s IMF and World Bank meetings could be difficult.

Members of the creditor committee need to see details of the China deal before finalizing their proposal, said a source with direct knowledge of the talks, who asked not to be named.

Sri Lanka started negotiating with creditors including China, Japan and India last September, parallel to moving forward on a $2.9 billion IMF bailout.

The EXIM agreement “constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery,” the ministry statement said.

Sri Lanka and China EXIM will in coming weeks “actively work on formalizing and implementing the agreed parameters of the debt treatment,” it added.

(Additional reporting by David Lawder in Marrakech; Writing by Tanvi Mehta; Editing by Kim Coghill, Edmund Klamann, Gerry Doyle, Elisa Martinuzzi and Deborah Kyvrikosaios)